TSMC Reports Strong Q2 Earnings, Capex Soars — What’s Next?

According to Seeking Alpha, TSMC (TSM-US)(2330-TW) has released impressive second-quarter financial results, with revenue increasing 33.7% year-on-year to $40.2 billion and earnings per share (EPS) surging 74% to $4.31, exceeding market expectations by $0.37. However, investors are more focused on the company's announcement to raise capital expenditure to between $60 billion and $64 billion, along with continued expansion of its U.S. investments.

As a result, although the stock experienced volatility following the earnings release, most analysts believe this pullback presents a long-term investment opportunity rather than a sign of deteriorating fundamentals.

How do Seeking Alpha analysts view TSMC's outlook?

Bullish investors point to sustained strong AI demand, with high-performance computing (HPC) now accounting for 66% of revenue, a 20% quarter-on-quarter increase. The 2-nanometer process is ramping up quickly, already contributing 3% to wafer revenue in Q2. Combined with the A14 process technology roadmap, the market sees TSMC's growth momentum extending through 2030, reinforcing optimistic sentiment.

Analysts also note that geopolitical risks have eased, with the U.S. relaxing certain export restrictions, allowing major clients to regain access to the Chinese market.

TSMC's free cash flow is projected to approach $47 billion by 2026, while gross margin has risen to a record high of 67.7%, indicating exceptionally strong profitability.

More conservative analysts, however, express concerns that the AI investment boom may last longer than expected, potentially straining free cash flow due to massive capital expenditures. The company's gross margin guidance for Q3 is 65%–67%, below Q2 levels, due to high initial production costs for the 2-nanometer process and margin dilution from overseas fabs.

Some analysts highlight ongoing uncertainties in the global economy and inflation. Discounted cash flow valuations suggest the current stock price already reflects highly optimistic growth expectations.

Below are selected analyst views:

Dividend Collection Agency (Rating: Buy): 'Even as the market continues to sell TSMC due to increased capex, I believe the market is missing the real point. Aggressive investment reflects sustained growth in chip demand, and TSMC continues to maintain strong cash flow, improve margins, and enhance profitability.'

Dhierin Bechai (Rating: Strong Buy): 'TSMC’s operational data completely refutes claims of slowing AI demand. Revenue hit the high end of guidance, margins exceeded expectations, and full-year revenue growth has been revised upward again to over 40%. Increased capex is due to even stronger customer demand than previously anticipated.'

JR Research (Rating: Buy): 'I have no reason to turn bearish; in fact, I believe this is a good time to add exposure. Based on current valuation, TSMC is still not overvalued.'

Julia Ostian (Rating: Buy): 'When a company reports explosive growth data but the stock price falls, it often means the market is offering a better entry point. Just like the AI stock pullback at the end of 2025 and beginning of 2026, I bought many undervalued AI stocks then and achieved remarkable returns. The market may be mispricing TSMC this time as well.'

Bohdan Kucheriavyi (Rating: Hold): 'According to my model, the fair value is currently below the market price, so there’s insufficient margin of safety. I believe the stock could still rise, but I’ve chosen to wait and see.'